Apparel retailer Gap Inc's full-year profit forecast fell short of analysts' estimates as it struggles with a strong dollar and weak sales in its Banana Republic and Gap brands. The company's shares fell 4.6 percent to $26.32 in extended trading on Thursday. Gap said it expected an adjusted profit of $2.20-$$2.25 per share for the year ending January, way below the $2.42 analysts on average were expecting, according to Thomson Reuters I/B/E/S.
The forecast includes a pre-tax impact of over $120 million from a strong dollar, which has been plaguing US companies with significant global presence. However, Chief Executive Arthur Peck reiterated that he was "extremely pleased" with the spring and summer products in the company's Gap and Banana Republic brands. The company has been vocal about the upcoming assortment in these struggling lines for the past few quarters.
Gap and many US apparel retailers are also bearing the brunt of customers flocking to fast-fashion retailers such as H&M, Forever 21 and Inditex's Zara. Nomura analyst Simeon Siegel said the environment is very promotional and it's not easy to "snap your fingers" and come out of the situation. Gap's net income fell by a third to $214 million, or 53 cents per share, in the fourth quarter ended January 30.
Excluding items, the company earned 57 cents per share, in line with the average analyst estimate. Sales of the Old Navy brand, which has been a bright spot for the retailer, fell 6.8 percent in the holiday quarter, hurt by a "couple of style misses" and an unexpected drop in traffic. The line was "over assorted" with sweater styles, CEO Peck said.
"Given that Old Navy relies heavily on volume and shoppers buying multiple items the impact was probably somewhat worse than it was for rivals," said Neil Saunders, CEO of research firm Conlumino. Revenue for the quarter was unchanged from the $4.39 billion the company provided on February 8. Gap also announced on Thursday a new $1 billion share repurchase program, replacing an existing authorization. Up to Thursday's close of $27.6, shares had fallen about 10 percent this year.
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